Crypto Trading 101: Crypto Trader’s Guide to Supply and Demand Trading
Supply and demand are powerful trading concepts that can help traders determine when crypto prices are likely to reverse. The difference between the classical support and resistance levels is that supply and demand areas have a price range instead of a singular price level.
The disadvantage of support and resistance trading is that the price will likely fail to turn precisely on the level itself. However, if you use the supply and demand trading concepts, you’ll never run into this problem.
What is Supply and Demand in trading?
Supply and demand is one of the most basic concepts in trading. It refers to the number of buyers and sellers in the market for a particular asset.
If there are more buyers than sellers, the price of the asset will go up. If there are more sellers than buyers, the price will go down. Supply and demand trading is a strategy that attempts to take advantage of these imbalances in order to make a profit.
Traders will buy when there is more demand than supply and sell when there is more supply than demand. By doing this, they can hopefully buy low and sell high, making a profit in the process.
How to Trade Supply and Demand
Determining where the supply and demand areas are is a simple process. All you need to do is to find price zones from where the price had a strong reaction in the past, either up or down.
Supply zones can be found by looking for significant price drops away from a cluster of small candlesticks where prices consolidated for a short period. That entire price consolidation zone represents a supply zone.
Conversely, demand zones can be found by looking for a significant price rally away from a cluster of small candlesticks where the price consolidated for a short period of time. That entire price consolidation zone represents a demand zone.
When the price revisits the supply and demand zones, we’re more likely to get a similar reaction from these price zones because that’s where the buying and selling took place initially.
This strategy works better if the trade is also taken in the direction of the overall market trend.
Bottom Line
If you're a crypto trader, understanding and trading on the principles of supply and demand is crucial to your success. We hope that this guide has given you a good foundation on which to start trading. Remember, the key is to always do your own research and stay up-to-date with the latest market trends. With that in mind, happy trading!
